Friday, January 27, 2012

The Benefit Cap and Britain's "Benefit Cheats"

The UK government, and David Cameron in particular, have hit on an idea that would help reduce welfare and also be popular with the public. The idea to cap welfare benefits per family at no more than the national average income (around £25,000) seems suddenly to make great common sense to the government and a lot of people.

Except that the House of Lords loathe the idea and have blocked it. And suddenly government are asking what right they upper house have to block the democratically-elected parliament from carrying-out its programme.

Now might be a good time to step back and look at the underlying issues behind the "cap", why it would even be necessary for a family to need £25,000 in government subsidies, and why there is an outcry over "benefit cheats".

First things first: how are an unemployed family able to be given a government subsidy worth the average national income of a working person?
The simple answer is because that sum of money applies mostly to large unemployed families in the London area: more than half of that "subsidy" goes on rent; much of the rest on bills; leaving a pretty modest amount if you have two parents and five children. Don't forget, that's seven people living in one of the most expensive cities in the world. If they lived in, say, Middlesbrough, where rent is a fraction the price in London, then naturally they would get a lower subsidy.

The government, in its enthusiam to grab a headline (no change there, then), forgets to mention that the benefits a family receive are means-tested; it depends on the cost of living of the place in the UK you live. So the idea of a national "cap" is not only wrong-headed, it's also absurd. It means that unemployed familes with several children that live in London (who anyway would face a tiny number of flats big enough to house them), would be forced to move out of London entirely. In other words, forced clearances of large families from the capital.

But that's only the tip of the iceberg. What the issue of the "benefit cap" really highlights is the shocking cost of living in the UK, especially in London. That's the real scandal.

Yes, the real scandal is that due to the insanely high cost of rent in places like London and the South East, in order to prevent masses large unemployed familes from having to live on the street, the government has to fork out a subsidy worth a working person's average national income. That's no fault of the unemployed family; that's the fault of the shameless and unregulated landlords, who the government completely fail to control.

That in itself is an appalling indictment of the state of the insanely-inflated property market in the UK, in London in particular. Let's remind ourselves that the price of rent nationally is still going up; utility bills are going up; and the cost of everyday living is still going up. Meanwhile, wages remain stagnant. The result: people in the UK are getting deeper and deeper into real and virtual poverty.
In this kind of economy, many young people find it impossible to save money to buy a house. Meanwhile, almost zero interest rates give no incentive to save what little money they have in any case. Banks are reluctant to risk giving people with no savings a loan to make any possible investments. And year on year, costs keep going up while wages remain flat, meaning that annually the average person may well be five per cent (or more) poorer than the previous year. This is a slow-motion downward spiral to poverty on a national scale.

Well, thank god we have a welfare state. But the outcry against "benefit cheats" is also largely missing the point. Let's use a hypothetical example.
A worker who lives in the south-east has a job that makes £20,000. After deductions for tax and national insurance, that takes away upto 15% of his income at least. Then there's the rent, which hacks off another 40% of his income (if he's lucky) . Then there are bills, which takes off another 10%, leaving him with only 35% of his salary left. Oh, and if he has a car, there's insurance, road tax and fuel (say another 10% of his annual salary at least). So, in reality, what he has to survive on per year (for food and enterainment) may, in theory be around £5,000 per year. Divide that into fifty-two, and you have under £100 per week - to pay for everything else.

However, if you are unemployed, you qualify for JSA (around £70 per week), and the council helps to pay for your rent. This is obvious; unless the government expects people to become homeless soon after becoming unemployed. There are other things, like being able to qualify for free college education in many cases, in order to give an incentive for you to re-train and have a chance of getting a better job. All well and good, as you would hope for in a civilised country.

So this poses the problem: that many people who earn less than the average national salary would feel justified in being envious of the unemployed, who have much less to "worry about" - such as paying the rent and bills. Clearly there are many cases of people defrauding the government out of welfare, but it's not the majority by any means; and in any case, it's difficult to imagine the situation being done in a different way that would not destroy the moral fabric of our "civilised" society.
No, the main reason for this insane state of affairs is the scandalous (and to my mind, economically inexplicable) cost of rent and housing in the UK, as well as the added factors of increasing cost of living. The latter, I understand, is partly down to global factors somewhat out of the government's hands, but the price of property is something that the government could easily regulate, if it ever had the guts. Or at least find the core causes of the problem, and deal with it.

In the UK, then, the insane cost of property is one of the real factors that explain the call for the "benefit cap" and the envy that working people feel towards the unemployed.

So far, few people have made this link known to the government, sadly.